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Oversold, Yet Overvalued

Mar. 02, 2020 3:40 PM ETAAPL, AMZN, GOOGL, MSFT33 Comments
WMA, LLC profile picture


  • MAGA is no more.
  • Big 4 converging with S&P 496.
  • Despite sell-off, the Big 4 are still too expensive.
  • Looking for a helping hand in the market? Members of ESG Investments and Monitors get exclusive ideas and guidance to navigate any climate. Get started today »

After one of the steepest and quickest market sell-offs in history, it may seem odd to read that equities are still overvalued. To be clear, most equities are both oversold and at least fairly valued (if not under-valued) after this past week. We mentioned to our readers that we have turned mildly bullish on equities, in general, but remain cautious (we won't employ the term bearish now) on a specific segment of the market. And that segment, U.S. large cap growth, can specifically be narrow down to Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), and Google (GOOG) (GOOGL). We find it rather ironic that the week before last, President Trump proudly held up a sheet of paper saying "The Trillion $ Club" with Microsoft, Apple, Google, and Amazon. The MAGA stocks. Well, the Trillion $ Club just lost two members, Amazon and Google. We have been wondering how long it would take President Trump's boastfulness in regards to the stock market to turn around and bite him in the ass. It just happened.

While we are putting our massive cash reserves to work here, we will not be buying the former MAGA stocks. These stocks are in an unusual situation of being, at the same time, oversold yet still overvalued. First, we can all agree on the oversold aspect. The following table shows the RSI's on the four titans. We consider an RSI 9-day under 20 to be oversold, while an RSI 14-day under 30 is oversold.

RSI 9-day

RSI 14-day

Feb. 21

Feb. 28

Feb. 21

Feb. 28





















Note that these are the Friday closing RSIs. Prior to the afternoon rally when the Dow was again down -1000

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This article was written by

WMA, LLC profile picture
Williams Market Analytics, LLC is a quantitative research boutique offering insightful, actionable analysis of financial markets. The firm also runs systematic, absolute return allocation strategies using quantitative models and a fundamental company ranking methodology. Our strategists have a combined 60 years of market experience with one PhD in finance, two MBAs, and the CFA charter. As authors of WMA Investments and Monitors, a premium subscription service at Seeking Alpha, our objective is to bring investors timely investment ideas and decision-support tools to aid readers in building their own long-term portfolios. The service includes real-time access to several actively managed strategy portfolios, access to our Fundamental Allocation Model, and our quantitative Daily Trading Models. .

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (33)

Brad Kenagy profile picture
I would also suggest looking at PEG ratio for each company. GOOGL and MSFT are the most appealing.
WMA, LLC profile picture
One thing is certain. We would not buy Apple, Microsoft, Google or Amazon until we see Seeking Alpha comment threads fulls of disheartened, panicked investors dumping these stocks from their portfolios.
Brad Kenagy profile picture
@WMA, LLC , I disagree, been waiting to get into MSFT and I plunged in last week after the big decline.

"We can confirm that the 10% to 12% corrections in these stocks have not sufficiently alleviated over-valuations to entertain the possibility of a long-term investment in these names."

I disagree.
WMA, LLC profile picture
@Brad Kenagy MSFT at $160 was better than $185. But we think that the $20-$30 decline from the peak does not wipe out the excesses. We have a crash bid in MSFT at $130. We think that there is a real chance of getting it at this price in 2020
If it hits $130, it will be 100% of my portfolio--But growing a PE at a 30 to 40% clip, it will be difficult to keep it below $200 in the long run. Fundamentally what you are asking for is ridiculous, but hey much of this market has had ridiculous moments so nothing can be ruled out.
Low interest rates will keep the Market “overvalued”. They are here to stay for the next decade or more, so the way metrics are now analyzed should be adjusted by the savvy investor. You don’t see Buffett selling into cash do you?
WMA, LLC profile picture
@Bleed Blue Chip we are looking also at RELATIVE valuations. Low interest rates may change the way companies are valued vis-à-vis the past, but low interest rates affect ALL company valuations. The question is not being in stocks, its whether you want to be in the most expensive stocks.
Historical valuations shouldn't be the basis for valuating a stock today esp. in stocks like MSFT or AMZN.
WMA, LLC profile picture
even after a -15% drop in these names, complacency still reigns. Maybe a -30% drop will arouse interest in expensive valuations.....
@WMA, LLC - you act like the recent drops have some long term performance metric to them--this virus impact like any other flu or cold strain will run its course and be history sooner than later. MSFT is growing at its current PE rate and then some, so any ridiculous opportunity if it were to drop 30% will be met with buying like yesterday was. COVID 19 will not change the long term fundamentals of these companies, thus why they are trading at the levels they are.
Judging MSFT on a historical PE is a huge mistake on your part and the part of your analysis--the company revenue sources are much different than history, namely AI and cloud as well as the change over to subscription based software offerings. Not the same company or the same PE-- revenue growth is not historical, it is significantly increased and so should PE in line with that growth. Article is really short sighted and lacking.
Confoundedinterest profile picture
MSFT is growing and is a fantastic company but do you truly think a 10-12% EPS growth rate deserves a 35 pe? 20, absolutely but the stock has outrun itself which makes it vulnerable in a crash/plague situation.
@Confounded Interest - not to bust your bubble or anything, but MSFT EPS is growing at a 30 to 40% growth rate. Their 5 year average EPS is around 31 so trading at 28 right now is actually BELOW long term average suggesting they can and deserve to trade higher from here based upon their growth rate. Not sure where your numbers are from , but mine are quoted from Fidelity investments screen shot page on MSFT.
Those that want passive way could switch spy to equal weight EFT like rsp. But as days like today showed, when the money comes back in, it goes back to the 4. 3 of 4 beat the 496 today, for example / spy beat rsp. It is interesting though and at some point value should be good place to be (other than just falling less).
wsoyke profile picture
The MAGA companies are not failing companies and all 4 will fully recover faster than most seem to believe. IMO averaging down makes sense to me, and I have on MSFT and AAPL. As for comparing historic PE averages, that may work for companies with static business operations. For companies with growing new business lines, transitioning to subscription based revenues, in sectors with enormous growth ahead, massive free cash flow, buybacks, and dividends? You'd wait for them to drop to a historical PE range? You probably won't be buying the stock.
William Dupuis profile picture
I don't think amzn is overvalued.
William Dupuis profile picture
Amzn is still growing very fast and is developing in many different sectors.
And countries. Since it hasn't even started to make a mark on the Netherlands, I'm sure this goes for a lot of other countries as well.
Confoundedinterest profile picture
I Agree completely with this author, I trimmed half MSFT at 180 sold out of AAPL at 315 & 290, I’m continuing to hold GOOGL however. I look to reenter AAPL at 200 ish if possible in the summer when I think the trough hits.
Brad Kenagy profile picture
Here is some good logic to apply for high quality companies to buy on pullbacks:

“Every investor’s told to buy low and sell high,” he wrote. “But most don’t realize that buy low typically works out to buy low, then buy lower, then buy even lower, and once you really hate yourself, buy lower than you thought was possible.”

YogiKait profile picture
oversold + overvalued = short them on rallies
abdulmoiz1254 profile picture
instead of crying they are too expensive
it's best to average down the cost
WMA, LLC profile picture
Dollar cost average down is the most amateur strategy. Add to a losing position and you get a bigger loser.
abdulmoiz1254 profile picture
Just buy 100 when it goes up 5%
sell 95 keep the rest as collection

it's a fanboy market, fundamentals don't matter for extended periods of time ..and at that time these stocks provide a good buck
leftside profile picture
Buying these stocks every time there has been a 10% decrease has been working well for the last 10 years. That’s a long amateur hour.
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